Although Jensen (1988) argues that high levels of free cash flow and unused borrowing capacity are likely to encourage low-value mergers, the “pecking order” theory offers a different perspective, where managers conserve cash flow to undertake positive NPV investments. We argue that the stronger position of shareholders, as opposed to firm managers, in the UK compared to the US makes the Free Cash Flow (FCF) hypothesis less likely to be relevant in the UK. In support of this, by analysing both announcement period and long term returns, we show that for a comprehensive sample of UK cash acquirers there is little support for the Free Cash Flow (FCF) hypothesis. Instead, our evidence is consistent with greater shareholder monitoring mitigating any agency problem associated with high FCF. Our results are also consistent with low FCF firms having a greater likelihood of being financially distressed.